Lock Em In, Raise Em Up II
Last week I asked your opinion on how a company should handle a price increase on a web application that they host. I also wrote this as an experiment to see what type of responses I would get if I didn’t mention the company’s name and not surprisingly the responses were very level-headed.
The web application that I was specifically talking about was Basecamp, by the ever-popular 37signals. In January of this year they raised the pricing of their packages and for the most part not too many people in the comments seem to mind. However, I was a bit surprised that there really wasn’t any talk about this within the blogosphere since the higher tier packages saw huge increases.
Depending on the initial price of the service, a 25%-100% increase may or may not be a big deal. I think the key is finding the number that is at the upper end of the “not a big deal” spectrum. Service costs $10 a month now? Ok, raise to $14 a month then. Not a big deal. Service costs $5 a month? Raise to $10 a month. Probably still not a big deal, as long as the customer knows why the increase is occurring.
That’s the key… the customer needs to rationalize the increase in price by correlating it to an increase in utility. If you can announce the addition of 10 new features, even if the customer didn’t necessarily ask for those features, they can say “Oh, ok, well I can see why it’s a little more expensive now.”
Very good point here by Davidson. If your package is priced at $10/mo and you raise it 20% to $12/mo that probably won’t be that big of a deal to most people. However, going from $39/mo to $49/mo or $59/mo to $99/mo seems like a much bigger deal to me. Now to 37signals credit, they did grandfather the pricing for current customers till March 30, but why not keep them at the initial rates to begin with and have the new pricing only effect new customers?
Is that bad business? They did increase the amount of projects you can host on the Pro package so that probably helped some of the Premium members.
By revising all the plans at once, we’re ensuring that we won’t need to revisit pricing again until 2006 — at the earliest.
After reading about the pricing increase does this statement make you feel any more secure about sticking with Basecamp? If not you really have no choice, but to either start all of your project from scratch with another system or stick with the program because Basecamp has no way for you to export your data (to my knowledge at least).
Now this is not a knock against 37signals. We have a Basecamp account setup over at Business Logs so I am not here to complain about the service. I am more interested to see if you think they handled the pricing increase properly or would you have done it differently. I only ask because I have a couple of ideas with regards to web applications that I might pursue in the future and believe that this would serve as a good case study.
And now that 37signals has been mentioned I would like to keep the comments as civil and intelligent as they were in the last post.
Related reading:
I’ve been happily using Basecamp for a few months and I think that even at the new rates it is a steal. It more than pays for itself in saved time and trouble managing my business each month.
Price increases are a fact of life, and I think 37signals handled this openly and honestly and tried to cushion the blow by providing more projects on the plans than before. They are quite different from the cell phone or cable tv companies and the way they try to obfuscate rate changes and balk at openly talking to their customers. I’d rather deal with 37signals anyday.
By Kevin on May 10, 2005 1:19 pm
Scrivs,
You can export your messages and comments. Go to the Account page (from your Dashboard) and find the link at the bottom of the page…
Not much help for your pricing woes though…
By John Peele on May 10, 2005 1:35 pm
Ah, thanks a lot John. Also I know that it would be difficult to export everything from Basecamp since there really is no standard for this kind of data.
By Scrivs on May 10, 2005 1:40 pm
I agree with Kevin - the key is that the value of the service is still great, particularly if you are running business on it. How much is your time worth, and how much does it save?
How did they handle the increase? I found it quite reasonable. A warning of upcoming increases, a brief explanation, and a small offer for existing customers. Overall, professional and realistic. Of course I would love to be on the same price forever - who wouldn’t. On the other hand, I don’t want the service to stop improving, and I’d quite like to increase my own rates from time to time.
As for the ‘until 2006′ statement - it just seems honest to me. The prices are increasing, it may happen again but not until 2006. As long as they stick to that promise, we all get what we expect, and I’m happy.
By Mat on May 10, 2005 1:40 pm
I just tried the export function of Basecamp, since I was thinking about writing a utility that worked with that information. Unfortunately, it turns out (surprisingly, I thought) that the to do lists, contacts, milestones, etc., don’t seem to be exportable. It’s only a small portion of the actual content that you can actually export out of the system as XML.
By James Archer on May 10, 2005 6:26 pm
I (like many others) trust the integrity of 37signals, so I’m sure that their next price increase won’t be until 2006. Still, why not put in the terms of service? They still have the 30-day, “we can jack up your price” clause.
A year or six month subscription could help some: give your customers the option of a definite time frame for a locked-in price if they can front the cash, otherwise they go monthly and risk a price increase.
As far as exporting data, it looks like the door’s open for an entrepenuerial person to build a competing service (or generous person to make a free tool) that would allow easy import of the basecamp XML. Viva competition!
By Rob on May 10, 2005 10:49 pm
A note on exporting data. Not only can you get your messages exported as XML but you can use the iCal feature on your Milestones page to get your Milestones and to-dos out. It seems to only include future Milestones but I suppose those are likely the more important ones to get to.
Your files should be in place on your server so that’s pretty much everything. All you lose out on is your old Milestones (which you could just switch to a year in the future on the same date for exporting if you need to get them out using iCal).
It’s not great, but it’s certainly not the worst example of data lock in that I could come up with.
By Kevin on May 11, 2005 1:03 am
I think we’re going to see some different techniques in raising prices for web applications vs standard applications. For a standard application, said company can create a “new” release, leaving people to have a choice to upgrade. Web applications differ in that they are constantly evolving and will rarely go through a complete rewrite (though sometimes it’s necessary). Typically high end packages or apps are the ones that take the biggest hit, because they are usually the more serious customers that can take it in as a business expense.
By Matt Galaviz on May 11, 2005 9:58 am
Good writeup and thanks for the feedback here.
When we launched Basecamp we definitely underpriced it, but we didn’t know until we got moving. We originally just picked some numbers that sounded about right and ran with them. We were beginners and it showed. So after a year we had to get a bit more serious with pricing in order to continue to provide a high level of service (we had to make some significant hardware investments in order to deal with demand). Even today our pricing is far below the competition and we don’t charge per person like almost everyone else does.
So, while some of the percentages may sound high, it’s only $3, $5, or $10/month extra. And that’s total — not per person. For a business tool that’s barely a price increase. On the high end, the $40/month increase is still very reasonable for a tool that could easily cost people thousands of dollars a month if they went with the competition. For what it’s worth, the majority of price complaints came from people on the low end, not the high end.
Our goal with the price increase was to remain reasonable and be honest about them and I think we’ve hit those two goals. We’re not into dodging, lying, or bending the truth. We had to raise prices so Basecamp would continue to grow and be viable. The increase also allowed us to hire another developer which will benefit everyone.
We don’t have any price changed planned right now, but we don’t believe in long term contracts, early termination fees, or set-up fees. This means that month-to-month prices can change, but as I said, we don’t have any plans to change pricing right now. We said we won’t consider a change until 2006, but that doesn’t mean we’ll change in 2006. It means that 2005 is locked in for sure. Again, we just want to be honest, direct, and up front with people.
Thanks again for the feedback everyone. We appreciate it and we’re listening.
By Jason Fried on May 12, 2005 5:36 pm
No, Jason. You’re not listening. You didn’t even email customers to let them know about the price increase. Just splapped it straight onto our credit cards.
To reiterate - you are locking in data - as James pointed out above
I find very endearing your comments about the low-end users. Obviously, a price increase for people who are using Basecamp for personal projects or very small businesses is a bigger deal.
It seems that you are not much interested in the low-end users. Strange, I imagine there are a lot of us. I will never forgot how when I emailed you about the price increase, you were totally dismissive.
“Look man, it’s just a couple of coffees/month.”
No Jason, it’s $60/year more.
When we signed up for Basecamp, I think we thought prices would be stable or even go down as you achieved economies of scale. Instead the opposite happened.
What ARE you doing with all of our money that you need so much more of it?
Basically, Basecamp was a good idea but it’s bad business. High time for an open source project management application that we can put on our own servers. I would be happy to pay a montly fee for such the hosted version, as I would know that if they get greedy (ie. 37signals), I can take the data and put it on a server of my own.
If you haven’t used Basecamp, I would suggest avoiding it as you are totally at the mercy of an organisation that doesn’t blink at 50% annual price hikes on a monthly fee.
By Alec on May 31, 2005 9:50 am
Alec - Just like with any product, you’re not obligated to continue using it if you feel it’s unfair in any way. Stop your subscription if you don’t like it, and maybe start walking the walk and write that open source app that you want instead of Basecamp.
And just so you know, $60/year is equal to $5 a month, which actually is a couple of coffees. Maybe you should check your math before you start flaming.
And what did they do with all the money? They bought new servers and hired a top-notch developer to continue innovating the product like Jason mentioned. It’s not like the 37s guys are rolling in Bentleys and pulling in multi-millions …… they’re just web guys trying to put out a quality service and make a living, but obviously you can’t respect that.
By Mike Rundle on May 31, 2005 10:32 am
Mike, I think it’s closer to the post title: Lock ‘em in and raise ‘em up.
You can’t just walk away from Basecamp (once you’re really using it). You have trained all your clients on it.
Your subscription can only reasonably be calculated on an annual, not a monthly basis. You can’t start and stop. If you do, you lose access to all of your archives. You lose the time you’ve put into building up your account. It’s an annual cost for rented software. It’s the same model that Microsoft has been dreaming of putting the world on.
Here is some more math for you. 2,000 paying accounts at 19 month = $38,000/month.
(To keep things simple - I’m basing it on the original second tier plan and the claimed user base of 10,000 with a five to one ratio of demo/free/abandoned accounts to paying ones. I am being deliberately conservative here.)
With this kind of regular guaranteed monthly income would one really need to raise the price to $24 - $48,0000/month - just to buy some new servers and continue development?
I don’t think so.
They may not have the Bentleys now, but clearly they want them soon.
By Alec on June 1, 2005 7:40 am
Dude. Deal. Not everything has Richard Stallman’s vague rant of approval, not everything is open source, and not everything is free. Nobody’s forcing you to do anything.
And here’s a mantra for you… “making money isn’t bad.” It’s why most people are in business, after all.
If you want to complain that they raised the price without notice, fine, complain about that. No notice is a bad business practice, certainly, and should be condemned. But complaining that they’re making more money than you think they deserve? That’s just stupid. Do you think this is some dude working from his mom’s basement? 37 signals isn’t a huge company, but it’s not just a couple of guys doing web crap in their spare time. 48,000 gross per month is peanuts to even a mid-sized business. That’s less than 10 average IT salaries plus benefits, without even taking into account the other costs of doing business. You know, like… hardware, keeping the lights on, business insurance, travel to clients, all that good stuff? Not exactly on their way to that new Arnage.
By JC on June 1, 2005 12:36 pm
I don’t have any issue with people making money.
What I don’t like is helping people make money and get their product off the ground- I was an early adopter - and then have them turn around and bite me and all the others that helped them get Basecamp off the ground with a price increase the first chance they get.
Quite frankly, based on past performance I think they’ll do it again. Regularly.
Here’s the formula I see.
Low introductory price (in which case it should be labelled as such - anything else is dishonest).
Lots of free web hype.
Push the punters in.
One year later, ka-ching.
The standard retort - if you don’t like the new prices, cancel your account - is highly disingenuous. A hosted application provider knows that you can’t do so very easily. And he can choose to take advantage of that fact - or honour your original trust.
Hosted applications are like the Hotel California. You can check out any time you like, but you can never leave.
We choose to trust a company with our lock-in and our client’s business. It’s a serious decision. On the positive side, sixapart seems to understand that. 37signals clearly does not.
By Alec on June 1, 2005 9:21 pm
I don’t have any issue with people making money.What I don’t like is helping people make money and get their product off the ground- I was an early adopter - and then have them turn around and bite me and all the others that helped them get Basecamp off the ground with a price increase the first chance they get.Quite frankly, based on past performance I think they’ll do it again. Regularly.Here’s the formula I see.Low introductory price (in which case it should be labelled as such - anything else is dishonest).Lots of free web hype.Push the punters in.One year later, ka-ching.The standard retort - if you don’t like the new prices, cancel your account - is highly disingenuous. A hosted application provider knows that you can’t do so very easily. And he can choose to take advantage of that fact - or honour your original trust.Hosted applications are like the Hotel California. You can check out any time you like, but you can never leave.We choose to trust a company with our lock-in and our client’s business. It’s a serious decision. On the positive side, sixapart seems to understand that. 37signals clearly does not.
(Previous comment did not format correctly - please delete.)
By Alec on September 16, 2005 7:41 am
Fun with time tracking - only Plus and Premium members get it. People are not happy. What a great way to make Basic members double their costs and spend another $288/year.
Still no reward/referral program in place, despite the promises from the beginning.
Nice business partners, 37signals.
I expect that Jason Fried will have to relent on this one. You heard it first here. Time tracking is coming to Basic plans.
By Alec on September 16, 2005 7:43 am